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As from a few days time people who install Solar PV (Photo Voltaic panels that make electricity from the sun) will be able to get what is called a FiT (Feed in Tariff) for all the power they generate – including what they use themselves. This amounts to a truly huge subsidy as you will see. After all, very few of us have installed them so far which suggests most of us know they are not cost effective without a subsidy. The figure is designed to whet your appetite and make you think you cannot lose by installing PV.

So let’s first discover the relative cost of making electricity from the various energy sources we have:

Wow! I think it speaks for itself – PV is massively expensive to make but we need to understand what the cost might be to us as I have shown a big range for PV.

If you happen to have the money (£14K to £25K) hanging around (so you don’t have to borrow it) and don’t expect to be able to otherwise invest it over the next 25 years – then all you have to recover is the capital cost. This is where the 38.9p comes from but is also based on just £5,000 per Kw of generator. The Energy Savings Trust’s figure as an average is between £6,000 and £8,000 so if we take the average of £7,000 just the capital cost is 54.4p [or a lot less than the FiT figure of 41.3p] but that is a ridiculous situation as you will be doing one or the other. So now we have to add in the interest we would pay on the loan, or the interest we will not earn as we have ‘invested’ our capital in the PV.

The cost now depends on the interest rate you will pay (or lose) so I have worked it for both 5% and 8% – very low levels I think you will agree. Using even the £5,000 gives a range 54.3p and 77.3p. Now take the £7,000 EST average and the range is 76.0p to £1.08 – or rather more than what you will get paid by the FiT. Sounded good didn’t it?

So now you know why the FiT is so ridiculously high. And of course you can now see that every bit of electricity you export to the grid increases the cost of it to the rest of us. Why would the grid buy it at this figure when it can do so for a few pence? I will most certainly not be fitting it so I hope you won’t or my electricity bill will rise.

This matter is explained in much more detail in my Brief on this subject – see hyperlink – where you will also find figures worked out for the most you can afford to pay for it in order not to lose money, and the impact PV would have on the UK’s power supply. It might make you quite certain what to do as the break even cost is likely to surprise you.